The cryptocurrency market is incredibly symmetrical and virtually every time all coins and tokens
move together.
Most crypto traders know this, but very few are aware of the real reason why exactly this
happens
A common answer that you will get from the average crypto trader is that the bitcoin price drives psychologically all altcoin prices.
Anyway, even if surely this thesis has a grain of truth, the real reason is very different, though very intuitive once you start seeing it.
In this article, we will unveil the main reason why BTC drives the price of all altcoins, and therefore why they all seem to move together.
“BTC is king”
It is the Holy Grail of cryptocurrency trading. Such a seemingly popular concept, yet 99% of people miss the real point.
How much did you hear the “BTC is king” type of sentence in your crypto journey?
It is one of the most repeated things. No one seems to truly understand it.
There are plenty of reasons why successful traders focus on trading BTC, and that is surely not only because it is the most psychologically impactful.
The very first reason why bitcoin drives all altcoin prices is that the exchange rate of every altcoin is priced against bitcoin in the first place, as a general rule.
After that, the BTC value is converted into USD.
In reality, when you see the USD price of an altcoin, you are looking at the altcoin’s BTC price calculated in US dollars.
For example:
ADA: 0.792 USD ( 0.0002039 BTC = 0.792 USD)
In other words, the “true price” of an altcoin is its exchange rate in relation to BTC. [1]
This dynamic opens up various conclusions.
First deduction
The first and most important deduction is that bitcoin’s USD price drives the USD price of all altcoins. Therefore it is incomplete and potentially counterproductive to trade an altcoin considering just its US dollar price.
If our balance is in USD, we can proceed with the practical part on altcoin/USD, but our analysis, thenceforth our reasoning has to be conceived also on BTC pairs.
In addition, since fiat currencies are priced against the US dollar, we can state:
Trading altcoins focusing solely on their fiat price is incomplete and potentially counterproductive.
Counterproductive because an altcoin may look like moving nicely, but those movements in US dollar price are only a reflection of BTC price action, and in reality, depending on your trading perspective (long or short), it would be moving worse than bitcoin.
For all those who only trade spot, BTC pairs are perfect for verifying if an altcoin is underperforming bitcoin.
Second deduction
The second deduction suggests that cryptos worth watching tend to have a different price action than the average. While still influenced by BTC, the price action similarity is less evident or very different. This happens when an altcoin has what we would call “crypto personality” in its price action; in other words, when an altcoin has its own activity and demand, more than how much it is dependent on bitcoin.
For what regards spot traders, they draw the possibility of identifying an environment that, in any case, grows positively against the US dollar, excluding BTC recessions.
Since our original purpose is to grow positively, our balance should be in the most positively optimal currency or asset.
Identifying the most profitable environments allows us to trade having an indirect profit. Bitcoin and cryptos that grow positively against it guarantee indirect positive growth against the US
dollar unless the whole crypto environment is in a bear market.
In conclusion.
As a synthesis, we can list a series of key statements.
An altcoin is priced against BTC. Then, the BTC price is converted into the US dollar price.
For this reason, bitcoin influences all altcoin USD evaluations. Altcoins may be pumping only because BTC is pumping, so is their BTC price converted into USD.
For spot traders:
Altcoins worth trading out-perform bitcoin. You can verify any such instance through BTC pairs.
When an altcoin performs better than BTC, a good spot trader would likely move temporarily to get the opportunity. At job done, he would likely return to BTC. If the altcoin is truly better than
BTC in the long-term, he would likely stay in it.
Everything described in this article has the sole purpose of being informative and providing general information. The author has no intention of providing any financial advice, legal advice, or tax advice. Do not rely on this article to make investment decisions. Seek professional help before making any such decision. The author does not take any responsibility for loss or damage of any nature. The use you make of the information contained in this article is your sole responsibility.